Dollar struggles, as euro retraces post-ECB dip

The U.S. dollar spent Tuesday solidly in negative territory, as one of its main rivals, the euro, rallied back to the level it was at before the European Central Bank’s dovish tapering action sent it lower three weeks ago.

The shared currency was helped by strong economic data out of Germany, the E.U.’s largest economy.

What are currencies doing?

The euro
EURUSD, +0.3081%
rose to $1.1795 against the dollar—a three-week high—popping up from $1.1669 late Monday in New York. The shared currency hadn’t traded above $1.17 since Oct. 26 and even briefly rose above the $1.18 level in Tuesday’s session, according to FactSet data.

The ICE U.S. Dollar Index
DXY, -0.24%
stuck to its downward trend and was off 0.7% at 93.834, facing its fourth loss in five sessions. The broader WSJ Dollar Index
BUXX, -0.13%
shed 0.4% to 87.38.

The pound
GBPUSD, +0.0712%
also moved higher to $1.3164, up from $1.3115 late Monday. Sterling found its two-day high after trading erratically earlier in the session, as consumer price inflation hit a five-year high of 3%, just shy of the FactSet consensus estimate of 3.1%. Sterling still faces political risks as Prime Minister Theresa May’s government continues to be plagued by scandals.

In the U.S., investors continued to focus on developments in Washington surrounding tax-cut proposals. Treasury Secretary Steven Mnuchin said the Trump administration wouldn’t support tax legislation with corporate tax above the proposed 20% rate as part of any future compromise between the House and the Senate. He ruled that out in an interview with The Wall Street Journal.

“Decent growth fundamentals are the perfect tonic for the euro at the moment. The single currency has capitalized on its economic strength alongside its political stability while the pound languishes in a Kafkaesque Brexit nightmare and the U.S. dollar gets stalled by concerns about tax reform,” said City Index’s research director Kathleen Brooks in a note.

“This could be the euro’s moment to shine, and it is why we believe that we could see back to the $1.1860 highs in euro-dollar before a potential rerun of $1.20 before year-end,” Brooks said.

EU data “combined with strong growth in the global economy, […] should mean that GDP growth in the eurozone should stay well above the trend rate,” wrote ABN Amro senior economists Aline Schuiling and Arjen van Dijkhuizen in a note.

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